Inflation is increasing as the downturn in Greece accelerates and the UK’s Mark Carney goes full speed ahead on QE.

“We do pay attention to extreme readings in both bulls and bears and also to historically significant runs of more bulls than bears. …advisors are only wrong when you get too many of them start thinking the same thing.” — Investors Intelligence

Here is what Peter Boockvar wrote today as the world awaits the next round of monetary madness: Bullish sentiment according to Investors Intelligence has made a new high post election. Bulls rose to 61.8 from 58.2 last week. That is the most since June 2014. Bears were about unchanged at 17.6 vs 17.5. The spread between the two at 44.2 is the most since March 2015. Those expecting a Correction fell to a 5 week low. As I’ve I been saying for the past month, the extreme bullish sentiment in this survey coincided with a market that has essentially churned since mid December. The Fed last hiked on December 14th 2016. The S&P 500 closed at 2272 on December 13th and finished yesterday at 2279…

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Mortgage applications weakened w/o/w with purchases lower by 5.6% and are basically unchanged vs last year. Refi’s fell by 1.4% and are down 32% y/o/y. The average 30 yr mortgage rate rose by 4 bps and back to a 5 week high. Persistent 5% home price increases and now rising mortgage rates are not incentives for 1st time buyers to go out and buy a home.

Downturn In Greece Accelerates
The eurozone manufacturing PMI index from Markit in January at 55.2 was left little changed from the first print out last week of 55.1 but that is up from 54.9 and at the best level in almost 6 years. Markit said Austria, the Netherlands and Germany had the best performance while the “downturn in Greece accelerates.” Spain and Ireland also put in a good showing. Italian manufacturing confidence fell to a 2 month low. The continued improvement in the European confidence stats though is coming with growing inflation as “price pressures continued to intensify…with rates of inflation in input costs and output charges both gathering pace.” A weaker euro and higher commodity prices are cited for the main reasons but “there are also signs of demand running ahead of supply, which hints at a tentative build up of core inflationary pressures.” With Draghi walking back from the headline spike in inflation and telling us to watch core, this is potentially very relevant. Bond yields are back up across the board in the region.

Political worries ahead of the May French election has the 10 yr bund/10 yr oat yield spread at the highest in 3 years at 61 bps. The French 10 yr yield itself is up 6 bps today to 1.09%, the highest since September 2015. The business friendly candidate Francois Fillon is under major pressure to drop out on nepotism accusations. This election will most likely come down to Marie Le Pen and Emmanuel Macron. Macron is certainly the preferred choice.

Despite Intensifying Inflation, UK’s Mark Carney Full Speed Ahead On QE
The UK manufacturing PMI fell a hair as expected to 55.9 from 56.1. This is still a good level and future business confidence is at an 8 month high but Markit said “there were signs that the boost to export orders from the weak exchange rate was waning, as growth of new business from abroad slowed sharply.” Also as seen in the eurozone, “Input cost inflation spiked to the highest seen since data were first collected in 1992. Over 55% of companies link rising costs to the exchange rate. However, we’re also seeing more companies reporting domestic supplier price hikes resulting from the rising cost of commodities such as fuel, oil, plastics and steel.” What is alarming and amazing is that we are seeing intense inflationary pressures in the UK and Mark Carney is still full speed ahead on QE and has short term rates at just 25 bps. What is he thinking? The 5 yr inflation breakeven in the UK is up to 3.30% and the 10 yr is at 3.45%, up 4 bps on the day. See chart on 10 yr breakeven, the highest since 2008:

What Is Really Happening In China?
China reported its January state sector weighted manufacturing and services PMI’s. Both were essentially unchanged m/o/m with manufacturing at 51.3 vs 51.4 and services printed 54.6 vs 54.5. It truly is impossible to separate what is real and what is credit stimulus juiced in China. There was little movement too in the other regional manufacturing reports. South Korea’s PMI fell to 49 from 49.4, Japan’s PMI was 52.7 vs 52.4, Indonesia’s PMI rose to 50.4 from 49, Thailand’s was unchanged at 50.6 and India’s got back above 50 at 50.4 from 49.6.